The Pros & Cons of Unlimited PTO

March 23, 2017 | BizRun Team

There was a time where unlimited PTO was only for the extremely small company or extremely lucky employee. But it’s becoming increasingly common for companies of all sizes to offer employees unlimited time off rather than traditional earned or accrual-based time off.

While you might worry that employees would take advantage of such a policy, many companies, especially startups, have reaped surprising benefits from removing limitations on time off.

But is it right for your company? Like most things, it depends. Here, you’ll get the pros and cons of unlimited PTO to make your own decision.

Unlimited PTO: Make Employees Happy and Reduce Costs

The concept of unlimited time off is this: you can take off as much time as you need for vacation, illness, bereavement, you name it, as long as you get your work done. While you might expect the office to be completely empty as a result, most companies have seen employees take about the same amount of time off that they would with the accrued system.

And the pros don’t end there. For starters, there’s less red tape and time spent managing accrued time off. HR managers are no longer juggling data on who’s accrued how much time, and then updating that total when an employee takes half a day off. And they no longer have to pay out accrued but unused PTO when an employee leaves the company. That alone is a huge cost savings.

Unlimited time off also has major sex appeal when it comes to attracting top talent in the recruitment process.It ranks right up there with a casual work environment, flexible work schedules and a foosball table in the break room. More common in tech startups than traditional business, this new wave of HR practices can make your company more competitive and attractive to the best job candidates.

And simply showing your staff that you trust them to get their work done can instill a sense of connection between employee and employer. No one likes to be micromanaged or mistrusted. Unlimited time off essentially empowers an employee to be responsible for his or her own results, like a grownup.

You might also benefit from fewer time off conflicts. When PTO expires at year-end, there’s often a mad rush by employees to go on vacation while they still can. That translates to an influx of vacation requests and an understaffed December. And that’s never good for business.

Unlimited vacation policies convey trust, making employees–not managers or HR directors–responsible for their tasks and projects.

Defined PTO: If It Ain’t Broke, Why Fix It?

While there are proponents, the fact remains that only about 2% of companies are venturing into the unlimited vacation water. And for good reason. The old-fashioned accrue it or earn it approach works just fine for most employers. Plus, it’s easier to stick with the known than wander into unknown territory.

There are other reasons, too. It’s generally accepted that having a cap on how much time each employee can take off typically translates to fewer headaches. Think about it. If your average employee has two weeks available, you don’t have to sweat the possibility of covering for any one person – let alone several – to take four weeks off to, say, hike Mount Everest or go on safari in Africa.

Some companies simply can’t afford to have positions unmanned for an unpredictable or unlimited amount of time. Consider what would happen if three manufacturing workers in a small production facility took the same two weeks off, with no one to fill in. Productivity and product deliverability would suffer.

Further, unlimited PTO can quickly become unmanaged PTO. A loosy-goosy approach to tracking can all too easily translate to inconsistent and ill-conceived requirements for requesting time off. Generally speaking, a more formal time off policy equates to more formal procedures around how time off is requested and taken.

Of course, the potential for abuse still remains, but it’s unlikely. The bigger issue is making sure the policy works for you and is clearly communicated.

Succeeding with an Unlimited PTO Policy

If you do decide to give your staff the freedom to take off as much time as they’d like, make sure to clearly outline your time off policy. Unlimited doesn’t mean unmanaged. Nor does it mean that an employee is automatically approved for any time off request.

Even with an unlimited policy, you might implement restrictions about taking time off during busy seasons, such as the holiday shopping season if you’re in retail. You should also request advance notice whenever possible.

Your policy might also state that an employee must identify someone to take over their responsibilities while they’re gone. Or require them to complete critical work before they leave.

You’ll also want to monitor the use of your time off policy to ensure that it’s not being abused. Naturally, the larger your company is, the more challenging this will be, but do check in with department heads to ensure that productivity and team coverage is not a growing concern.

If you’re transitioning from accrued to unlimited, you’ll need to have a plan for what will happen to your employees’ accrued time off. Will you pay that out when they leave? Or do they lose the cash value of those days? You’ll want to be sure to consult your state’s laws about this. Some states, like California, have strict PTO regulations about what your employees are entitled to receive.

Also, take other paid or unpaid leave benefits into consideration. How will implementing an unlimited time off policy affect your adherence to the Family Medical Leave Act, for example?

Communicate the fact that this is a trust-based endeavor, and that abuse of the policy will not be tolerated. You’ll also want to come up with metrics on how to assess productivity and contribution from employees if you’re no longer basing it on hours worked. What constitutes a job well done if an employee only works five hours a week some weeks? What consequences will there be if he continually misses the mark with his work?

Even when employees take planned, predictable time off, it has a ripple effect. When that time is unlimited and less predictable, it can have business-crippling effects.

But should you decide to take the plunge, you may find that your employees work harder than ever. Empowered to control their own schedules, they may become more engaged, productive and loyal than you ever dreamed possible.

Either way, the choice is yours. And you’ll want to take your own time to make the right decision for your business.